Federal Incentives for Hydropower

RENEWABLE ELECTRICITY PRODUCTION TAX CREDIT (ALSO CALLED THE "RENEWABLE ELECTRICITY, REFINED COAL, AND INDIAN COAL PRODUCTION CREDIT")

The Renewable Electricity Production Tax Credit (PTC) is a per-kilowatt-hour (kWh) tax credit for electricity generated using qualified energy sources. The PTC provides a tax credit of 1.3 cents/kWh for electricity generated from landfill gas, open-loop biomass, municipal solid waste resources, qualified hydroelectric, and marine and hydrokinetic. Electricity from wind, closed-loop biomass, and geothermal receive up to 2.5 cents/kWh. The PTC is phased down (40%) for wind facilities and expired for all renewable energy commencing construction after December 31, 2021.^[1] The PTC—also referred to as the Renewable Electricity, Refined Coal, and Indian Coal Production Credit—can be claimed using IRS Form 8835.

RURAL ENERGY FOR AMERICA PROGRAM (REAP)

The Rural Energy for America Program—or REAP—provides guaranteed loan financing and grant funding to agricultural producers (in rural or non-rural areas) and rural small businesses (located in rural areas with populations of 50,000 residents or less) for renewable energy systems or to make energy efficiency improvements. Through the program, agricultural producers can also apply for new energy efficient equipment and new system loans for agricultural production and processing. REAP funds may be used for renewable energy systems such as hydropower below 30 megawatts and ocean (tidal, current, thermal) power generation. The program provides loan guarantees on loans up to 75% of total eligible project costs, grants for up to 25% of total eligible project costs, or combined grant and loan guarantee funding up to 75% of total eligible project costs. The REAP program has been authorized by Title IX of the Agricultural Improvement Act of 2018 (2018 Farm Bill).^[2]

HYDROELECTRIC PRODUCTION INCENTIVE PROGRAM

The Department of Energy’s Water Power Technologies Office provides funding through their Hydroelectric Production Incentive Program. This funding is available due to Section 242 of the Energy Policy Act of 2005, or the EPACT. The EPACT framework supports the development of renewable energy systems and advancements in energy conservation and energy-efficient technologies. Hydropower is an important renewable energy resource in the US, but thousands of dams across the country do not producer power. Adding generation equipment to these sites could add up to 12 gigawatts of new hydropower capacity to the US electric system. Due to recent amendments to Section 242, the DOE is expanding its eligibility criteria for this year’s round of funding. Hydroelectric facilities such as those located in communities with inadequate electric service, may now be eligible to receive incentive payments. The maximum payment per facility has been increased to $1 million per year increased from the previous $750,000 limit. The length of eligibility window has been extended for hydroelectric generation facilities in operation on or after October 1, 2005 through September 30, 2027. Applicants may receive up to 1.8 cents/kWh.^[3]

Updated by Erin Bennett, June 2022